A multilevel marketing business model is a business in which individuals who are independent representatives of a product company market and sell a company's products, and sponsor new independent representatives to do the same. Typically, to provide an incentive to market and sell the company's product, the company will pay performance bonuses to the independent representatives based on their sales volume and the sales volume of those they have sponsored.
Traditionally, companies implementing multilevel marketing businesses models have generally used two types of business models. The variations in the multilevel marking business models are often based on how product orders are placed and fulfilled.
In a traditional multilevel marketing business model, independent representatives are known as distributions. Distributors may purchase the company's products for themselves, for those distributors they have sponsored, and for sale to retail customers. There are typically two types of distributors. A direct distributor is authorized to purchase products directly from the product company where a non-direct distributor must order their products and receive fulfillment of their orders through a sponsoring distributor. The sponsoring distributor similarly must place their orders, including orders of their sponsored distributors, with their sponsoring distributors, and so on, known as the upline, until the order reaches a direct distributor who places their order directly with the product company. Normally, fulfillment of product orders occurs in the opposite direction through the chain of distributors, known as the downline.
At each distributor level, the distributor receives orders for products from their downline, combines these orders with their own orders for personal consumption and for sale to their retail customers, and places this combined order with their sponsoring distributor or directly with the company, as in the case of a direct distributor.
Typically, each product sold by a multilevel marketing company is assigned an incentive value. The incentive value is used to help determine performance bonuses paid to the distributors. Often, the incentive value attempts to balance the profit earned by the company on the sale of the product against the amount of incentive required for a distributor to sell a particular product. Further, incentive values are often assigned on a product by product basis and their value has no basis on the overall value of a given transaction, i.e. the individual incentive value assigned to a product does not change based on the quantity of the product purchased or the combination of products purchased. Additionally, there is no predefined mathematical relationship between the incentive value and the price of the product. For example, a $10 bottle of vitamins may have different incentive value than a $10 water filter due to the characteristics of the products, such as their manufacturing cost or market penetration.
When a distributor places their order with their sponsoring distributor, or with the company, the incentive value for each product in the order is added to that distributor's periodic accumulated incentive value. The accumulated incentive value is used to determine the performance bonus owed to that distributor.
In an internet-based multilevel marketing business model, the business model is similar to the traditional multilevel marketing business model except that all distributors, often referred to as independent business owners (“IBO's”), are eligible to purchase products directly from the product company using an internet web site. Product orders are then fulfilled directly to the ordering IBO. Under the internet-based multilevel marketing business model, the incentive value of each product is earned in the same manner as in the traditional multilevel marketing business model described above wherein the IBO earns the incentive value associated with products purchased by themselves and their sponsored IBO's. Further, performance bonuses are computed and paid in the same manner as the traditional multilevel marketing business model.
In both the traditional and internet-based multilevel marketing business model, IBO's or distributors may earn a performance bonus based on the sales of products to themselves and to their sponsored participants, i.e. their downline. The sale of these products may be for personal consumption, further downline distribution, or retail sale. Normally, the amount of the performance bonus is based on the accumulated incentive value for all products purchased by that IBO/distributor over the course of a pre-defined period, typically a month. For every purchase made by the IBO/distributor or his downline, the assigned incentive value for purchased products is separately accumulated. At the end of the accumulation period, e.g. at the end of the month, the accumulated amount of incentive value is referenced against a look-up table to determine the amount that will be paid as cash value to the IBO/distributor and his downline as a performance bonus. Once the performance bonus is paid, the accumulated point total is reset to zero for the next accumulation period.
In addition to performance bonuses, a product company typically pays sales commissions to distributors or IBO's for purchases made at retail prices by their downline or retail customers. For direct sales made by a distributor in the traditional multilevel business marketing method known as “Standard Fulfillment”, the retail commission is essentially the profit margin between the selling price and the price at which the distributor purchased the products, wherein the distributor simply retains this profit for themselves. According to the “Direct Fulfillment” multilevel marketing method, for sales made via a web site to clients at retail prices, the profit margin is similarly measured but accounted and paid by the company to the referring IBO.
Currently, there is no single order processing system which can route orders to be processed through both the traditional and the internet-based multilevel marketing business model depending on the type of product being purchased. For example, if single a multilevel marketing organization allows individuals to sell products according to both the traditional multilevel marketing business model and the internet-based multilevel marketing business model, that multilevel marketing company must be able to accept and fulfill two separate types of orders. A first order contains a set of products handled through the traditional multilevel marketing business model and a second order contains a set of products handled through the internet-based multilevel marketing business model. In addition, the multilevel marketing company must be able to track incentives and pay performance for distributors selling within both the traditional and the internet-based multilevel marketing systems. Hence, a company implementing both traditional and internet-based multilevel marketing models is forced to maintain two order systems. Further, the individuals are required to parse out their orders, i.e. identify which products can be ordered from which system.
Therefore, It would be desirable to have an order processing system that integrates the traditional and internet-based multilevel marketing business models wherein an individual who is both a distributor and an IBO can place a single order with all of their desired products and have the processing system parse, route, and process the order through either the traditional or internet-based multilevel marketing business model.